How Blockchain Will Disrupt Loyalty Programs

Loyalty programs are broken. They don’t work because they offer only closed value.

When a business issues thank-you points, these essentially function as IOUs. A customer can redeem points by exchanging them for in-house goods or services. In reality, the fact is that – more often than not – they don’t bother. Only 24 percent redeem the rewards they earn. Since market research tells us that 50% of US shoppers have quit a loyalty program, it’s clear that businesses don’t always get it right.

The trouble with loyalty programs

Typically, points racked up are redeemable only through the business issuing said points. Points are usually not transferable, nor do they carry over beyond a set expiry date, and depending on the merchant, can even be limited to the extent of dictating which products or services it can be used for.

Nowadays, every second business seems to run a loyalty scheme. In the US alone, there are 3.8 billion loyalty scheme memberships. Sadly, there is often little overall value to the customer. This explains why growth has slowed. Consequently, loyalty programs are not nearly as effective at generating loyalty through incentivizing repeat customers as they are designed to be. Since administrating a loyalty program can be a resource-intensive operation, the return on investment often does not justify the promise of a seldom achieved gain.

For a business to compete in the global economy, it’s important to maintain a competitive advantage. Many businesses continue to view launching a loyalty program as a requirement for generating customer loyalty, even if it ends up costing more than what it generates in repeat business.

Rethinking Loyalty Points and Schemes

Blockchain technology, however, enables businesses to go back to the drawing board and rethink having an in-house loyalty program.

Thanks to the blockchain, loyalty schemes can be made more efficient, effective, and cost-effective. Blockchain startups like Incent are already doing great work in that space, bringing to the table new solutions to old problems.

How Blockchain Revolutionizes Loyalty

Incent, the world’s first universal merchant-backed loyalty business built on the blockchain, is changing the way we think about loyalty schemes.

Incent’s business model eliminates treating loyalty points as fiat currency that can be minted indefinitely. Instead, it likens points to gold, treating it as a commodity in limited supply.

Incent transforms the system from a closed value proposition that many customers deem as being of little value, into an open market economy.

When a customer makes a purchase, a percentage of the sale is used to buy loyalty points on the Incent system. These are sent to the client’s Incent account. In accumulating points from a variety of merchants, the customer is free to decide where and when to spend their Incent-powered loyalty points. No longer does a closer value loyalty scheme make them beholden to any particular merchant.

Thus, using blockchain technology, a business is freed from the heavy administrative burden associated with running a loyalty scheme. It’s also is able to bypass forward liability, affording a merchant zero forward liability, meaning costs are known and spent upfront.

By building a network of participating Incent outlets, Incent offers customers the ability to trade blockchain-based points that store actual value and, thanks to its open value nature, is transferable between a variety of stores

Creating a win-win

An open value system respects the customer as a self-governing individual who is best equipped to decide whether to spend, save or trade a loyalty token that has actual monetary value. And a business that respects its customer is bound to be awarded the customer’s loyalty in return. After all, isn’t that what loyalty schemes are all about?

This is an exciting blockchain use case, one that many consumers and businesses alike will be eager to see widespread adoption of.

About Nadja Bester

Nadja has extensive global corporate and agency experience in multimedia marketing and communications. She is the founder of blockchain communications agency Wordarium.io, and is a blockchain author and speaker currently working on a book about blockchain’s disruptive powers.